[24 FSM R. 50]

CIVIL ACTION NO. 2019-2002

Hearing: November 16, and December 15, 2022
Decided: February 15, 2023

APPEARANCES:

For the Plaintiff:              Michael J. Sipos, Esq.
                                       P.O. Box 2069
                                       Kolonia, Pohnpei FM 96941

For the Defendant:         Canney Palsis, Esq.
                                       Directing Attorney
                                       Micronesian Legal Services Corporation
                                       P.O. Box 38
                                       Tofol, Kosrae FM 96944

HEADNOTES

Jurisdiction – Subject-Matter

The court has an affirmative duty to satisfy itself as to the existence of subject-matter jurisdiction. Padma Enterprises v. Fuentes, 24 FSM R. 50, 51 n.1 (Pon. 2023).

Civil Procedure – Motions

The court may, in its discretion, take cognizance of even belated arguments. Padma Enterprises v. Fuentes, 24 FSM R. 50, 51 n.1 (Pon. 2023).

Jurisdiction – Subject-Matter

The apparent agreement of all the parties to jurisdiction does not establish jurisdiction. Padma Enterprises v. Fuentes, 24 FSM R. 50, 51 n.2 (Pon. 2023).

Jurisdiction – Diversity

Partial foreign ownership of a corporation makes that corporation a foreign citizen for purposes of diversity analysis. The fact that a corporation owned in part by a non-citizen is incorporated under the laws of the FSM does not make it an FSM citizen. Padma Enterprises v. Fuentes, 24 FSM R. 50, 52 (Pon. 2023).

Business Organizations – Partnerships; Jurisdiction – Diversity

A general partnership jointly owned by a citizen and a foreign citizen, is, according to established precedent, a noncitizen for diversity jurisdiction purposes. Padma Enterprises v. Fuentes, 24 FSM R. 50, 52 (Pon. 2023).

Civil Procedure – Dismissal – Lack of Jurisdiction; Jurisdiction – Diversity

When all three parties to the litigation are foreign citizens, the court lacks subject-matter jurisdiction over the case, which will then be dismissed without prejudice. Padma Enterprises v. Fuentes, 24 FSM R. 50, 52 (Pon. 2023).

COURT'S OPINION

DENNIS L. BELCOURT, Associate Justice:

On June 2, 2022, this Court sua sponte entered an order for the parties to brief the issue of whether this Court has jurisdiction on the basis of diversity of citizenship under section 6(b) under Article XI of the FSM Constitution. Having received briefs¹ from both Plaintiff Padma Enterprises ("Padma") and Defendants Fuentes ("Fuentes") and AB Electronics ("AB Electronics"), and having reviewed the pleadings and other filings in this matter, this Court finds that, under established precedent in the FSM, diversity jurisdiction is absent because all three of the parties are considered foreign citizens, as AB Electronics is a general partnership that includes a partner who is a non-citizen. Lacking any other basis for subject-matter jurisdiction, this Court must dismiss this matter.

PARTIES' CONTENTIONS

Padma contends that there is constitutionally sufficient diversity because AB Electronics includes FSM citizen Dorothy Rinehard William ("William") as well as foreign citizen Fuentes. The gist of Fuentes' argument is that AB Electronics' presence creates diversity jurisdiction but it should not be a party to this case because this case is about the contract between Padma and Fuentes, and Padma's inclusion of AB Electronics constitutes forum shopping.²

JURISDICTIONAL ANALYSIS

Article XI, section 6(b) lays the groundwork for our jurisdictional analysis. Insofar as it addresses diversity jurisdiction, it reads in pertinent part as follows: "The national courts, including the trial division of the Supreme Court, have concurrent original jurisdiction in cases . . . in disputes between a state and a citizen of another state, between citizens of different states, and between a state or a citizen thereof and a foreign state, citizen, or subject." Id.

According to the Complaint, Padma is incorporated in Chuuk and owned by both FSM citizens and non-citizens. Under well-established precedent, not disputed by the parties, even partial foreign ownership of a corporation makes that corporation a foreign citizen for purposes of diversity analysis. Luzama v. Ponape Enterprises Co., 7 FSM R. 40, 44 (App. 1995). The fact that a foreign-owned corporation in part owned by a non-citizen is incorporated under the laws of the FSM does not make it an FSM citizen. Geoffrey Hughes (Export) Pty, Ltd. v. American Ducksan Co., 12 FSM R. 413, 414 (Chk. 2004). Place of incorporation is irrelevant. Id.; Federated Shipping Co. v. Ponape Transfer & Storage (III), 3 FSM R. 256, 260 (Pon. 1987). Therefore, Padma is a noncitizen. As it is undisputed that Fuentes is a citizen of the Philippines. She and Padma are therefore nondiverse.

Whether there is constitutionally sufficient diversity therefore hinges on AB Electronics' citizenship. According to the complaint, AB Electronics was formed in Kosrae as a partnership between an FSM citizen, William, and a citizen of the Philippines, Fuentes. The holding in Federated Shipping as to corporate citizenship was based on the constitutional provision regarding land acquisition and foreign investment, both of which applied a strict "citizen-only" test. Federated Shipping Co. (III), 3 FSM R. at 258-59. Its application, if at all, to partnerships or joint ventures was doubted in International Trading Corp. v. Hitec Corp., 4 FSM R. 1 (Truk 1989), in which the trial division of the FSM Supreme Court, having been cited only U.S. authorities, stated:

The general rule in the United States is that the citizenship of the members of a partnership or joint venture is examined to determine whether diversity of citizenship exists. The rule has been questioned in some cases in which the association has significant aspects which make it more akin to corporations than an association of individuals. Examples of aspects which the courts have found significant are the power to sue and to be sued in the name of the association, and the limited liability of the individual members of the association.

Id. at 2.

The court in International Trading Corp. v. Hitec Corp. declined to hold that the joint venture was a citizen for diversity purposes. In Luzama v. Ponape Enterprises Co., the appellate panel of the FSM Supreme Court, citing International Trading Corp. v. Hitec Corp., was not so reluctant, finding that a joint venture owned by two non-citizen corporations was a noncitizen. Id. at 44. Subsequently, this Court held that the "Federated Shipping analysis"–that corporations are foreign citizens if partly owned by a foreign citizen–"applies as well to a general partnership," since the FSM Foreign Investment Act applies to "any business" with partial foreign ownership. Island Dev. Co. v. Yap, 9 FSM R. 220, 223-24 (Yap 1999); See also Apostol v. Maniquiz, 22 FSM R. 146, 148 (Chk. 2019) (same rule applies to nonprofit entities).

AB Electronics, as a general partnership jointly owned by a citizen and a foreign citizen, is, according to established precedent, a noncitizen for diversity jurisdiction purposes. Since all three parties to this litigation are foreign citizens, this court lacks jurisdiction to hear this case under Article XI, section 6(b). Geoffrey Hughes (Export) Pty, Ltd., 12 FSM R. at 415.

CONCLUSION

Since there is no apparent basis for this Court having subject-matter jurisdiction over this case, NOW, THEREFORE, IT IS HEREBY ORDERED that this case is dismissed without prejudice.

Footnotes:

¹ Plaintiff's brief was filed six days late, on September 21, 2022, apparently without a request for enlargement of time. Defendants' brief was filed late and included a request for enlargement of time, citing inadvertence and probable lack of prejudice and stating plaintiff's counsel consented to the request for enlargement. Such conclusory statements do not constitute excusable neglect under FSM Rule of Civil Procedure 6(b). Nevertheless, this Court has an affirmative duty to satisfy itself as to the existence of subject-matter jurisdiction. Bualuay v. Rano, 11 FSM R. 139, 145 (App. 2002). The Court may, in its discretion, take cognizance of even belated arguments.

² The apparent agreement of all the parties to jurisdiction does not establish jurisdiction. Luzama v. Ponape Enterprises Co., 7 FSM R. 40, 45 (App. 1995) (parties cannot confer or divest a court of jurisdiction by stipulation (or by assumption)).